Making growth work for the poor

Transcription

1 Making growth work for the poor A window of opportunity to eradicate extreme poverty and boost shared prosperity within one generation Karl Kendrick Chua Senior Country Economist The World Bank in the Philippines September 17, 215 Visit worldbank.org/ph for the cited reports

2 An enormous jobs challenge.

3 Caused by decades of bad policies, underpinned by centuries of extractive institutions

4 Strong macroeconomy: instead of short-term stabilization, we can now focus on the long-term Percent Real GDP per capita (2 prices) growth Percent of GDP Current account balance -1-9 Sources: National Statistics Office (NSO), WDI, World Bank staff estimates Sources: WDI, Department of Budget and Management (DBM) Note: Red line at 2.5 percent (long run average) Notes: The red line is at -3 percent. Current account balance has a series break in 1977 and in 25. National government deficit and debt Percent CPI inflation Percent of GDP Debt Deficit (rhs) Percent of GDP Sources: Philippine Statistics Authority, Bangko Sentral ng Pilipinas Notes: The red line is at 5 percent Source: WB staff estimates using NSCB, BTr, and DOF data

5 A history of successful reforms that made a big difference = 5 million direct jobs PHP billion Telecommunications revenues Millions Mobile phone subscriptions Sources: Securities and Exchange Commission (SEC) USD billion BPO sector total revenues Source: Business Processing Association of the Philippines (BPAP) Millions Source: WDI Air transport, passengers carried Source: WDI Note: Data include passengers of both domestic and international flights.

6 What does eradicating poverty mean for the economy? Under business as usual, nominal consumption growth of around 1 percent per year is possible, driven by Population Remittance However, business as usual does not get us anywhere near the potential. High poverty High inequality

7 I seem young, but I am older than the three-fourths of Filipinos. Source:

8 Even in 25, larger share of working Filipinos means strong growth for 35 years Philippines China Age distribution, present Projected age distribution, 25 Age distribution, present Projected age distribution, percent of total population percent of total population percent of total population percent of total population Thailand Japan Age distribution, present Projected age distribution, 25 Age distribution, present Projected age distribution, percent of total population percent of total population percent of total population percent of total population

9 Remittances are another major sources of growth for the housing sector Hundre ed thousands OFW deployment breakdown Asia Europe Middle East The Americas Other Sea-based USD billions Remittance levels and growth Total remitttance Remittance growth (RHS) Pe ercent Source: POEA Source: BSP

10 Taken together, a young population and strong remittances almost guarantee 1 percent nominal growth per year Milliion peo ople Population and consumption projections 18 3 Population Consumption (RHS) PHP trillio ons PHP thousa ands Monthly consumption per capita projections Sources: UN population prospects, WB staff computations Sources: UN population prospects, WB staff computations

11 But is this good enough? Only 1 percent of Filipinos are middle class and up Annual household income in 212 PHP 1,, 9, 8, 7, 6, 5, 4, 3, 2, 1, Breakdown of household income by decile Wages and salaries Entrepreneurial Income Other Income Source: WB staff computation using FIES Income decile PHP 3, 25, 2, 15, 1, 5, Source: FIES Breakdown of other income by decile Cash Receipts from Abroad Cash Receipts from Domestic Sources Others Income decile Average monthly income per working person is only PHP 19, at the 9 th decile. Note: these data are adjusted for underreporting.

12 The majority of Filipino households spend most of their income on food, since they are quite poor; and very little on human capital 6, 5, Breakdown of household expenditure by income decile Food Human Capital Others 4, PHP P 3, 2, 1, Source: FIES Income decile

13 Poverty is still very high Poverty statistics in 212 Poverty at PHP 52 per person per day (official poverty line) Poverty at PHP 14 per person per day Poverty at PHP 156 per person per day Poverty at PHP 28 per person per day Total value of poverty gap using official poverty line 23.7 million 56. million 71.5 million 79.3 million Around PHP 135 billion (Equivalent to only 1/3 of the net worth of the country s richest man!) Source: PSA

14 But even if poverty is addressed, high inequality is not good for society. USD billions Philippine GDP GDP doubled in a decade USD billions Net worth of Forbes top 4 Net worth of Forbes top 4 more than quadrupled in the same period! Sources: WDI, WB staff computations Sources: Forbes, WDI, WB staff computations

15 More inequality is bad for growth Source: Barro and IMF Latin America is very unequal, and grows slower. East Asia is more equal and grows faster.

16 In summary, a great potential that is realizable; the challenge is to grow the middle class HSBC GDP per capita projections (constant 2 USD) ASEAN (projected) Singapore 34,11 84,45 Malaysia 5,224 29,247 Thailand 2,744 11,674 Indonesia 1,178 5,215 Philippines 1,215 1,893 Vietnam 674 4,335 Non-ASEAN China 2,579 17,759 USA 36,354 55,134

17 But only if we all work it out. 17

18 Balanced package of reforms to increase real income and create more opportunities to move up the job ladder: Government Enhance programs to reduce food prices without farm profits falling Provide universal social and health insurance Provide training and apprenticeships programs Simplify business regulations Businesses Support reforms that promote competition to level the playing field Support freedom of association and collective bargaining Offer more training opportunities Improve the link between wages and productivity Labor Recognize valid forms of flexible contracts Reduce calls to hike minimum wages as food prices fall. Civil society Ensure broad-based participation and support for this agreement.

19 Thank you.